Honda dealerships: profitability “as good as it gets”


How do Honda dealerships manage new vehicle pricing?

It’s a dealer-by-dealer decision, so I can’t generalize. Overall, we haven’t seen any major impacts on customer satisfaction ratings, which tells me that Honda dealerships, as a group, are generally very good at communicating with their customers and take care of their customers.

What does Honda tell dealers about pricing and markups?

I won’t say they were upfront about it. I believe Honda expects its dealers to act responsibly and take care of our mutual customers. While Honda, like most OEMs, tries not to get involved in pricing, I’m sure there are isolated cases here and there. But for the most part, dealers are doing their best in a limited situation. There is no doubt that prices are up, but unfortunately, prices are up for everything right now.

How sustainable are current vehicle margins and profitability levels as inventory levels improve?

That’s the million dollar question. The more OEMs match production to demand, the more likely dealers are to maintain their margin and manufacturers must also maintain their margin and not rely on incentives. It’s really going to take discipline from the factory and discipline from the dealers.

This is one of those “to be determined” moments. I hope dealerships take a long-term view, that they will need their new car departments to be profitable, especially as we face the future of electrification and potentially less profitable. People have to figure out how to be profitable in the new car department, and maybe it’s that watershed moment where people start to change their thought process a bit.

How have Honda’s sales incentives changed during this period of declining production?

Vehicles don’t need the level of incentive support in such a tight inventory situation, so I think Honda did what they could. They provided APR support. They provided lease support. They acted appropriately when they needed to provide the appropriate incentives. But overall their incentive spending is down – as I expected – but they haven’t taken a position, “absolutely no incentive”. I think they “look and see” by market and model line and see where a product might need support. It’s also about looking at where the product is in its lifecycle and then the competitive landscape.

How do you anticipate these sales incentives changing as production and inventory improve?

The OEMs are going to do whatever it takes to make sure the vehicles sell. They generally only have two levers: advertising and incentive support. So I guess over time, as stocks normalize, you’ll see increases on both of those fronts. I’m not sure you can see that as much with Honda, given that in the next 18 months the amount of new Honda products will hit the market. Generally, new products require less support.

What is Honda doing to promote used vehicle sales, including with its Certified Pre-Owned vehicle program?

They just announced their “True Used” program, which allows Honda dealers to certify Honda vehicles for up to 10 years. This essentially adds another five years to the vehicle’s potential certification. It really caters to a large portion of the market that franchise dealerships lacked. It’s definitely a shot through the arc of the Carvanas and Vrooms of the world because that’s really where they play, despite showing ads of people driving used BMWs and Porsches And so on. The truth is that most of their sales are in this 5-10 year old vehicle market. Being able to offer these consumers a certified Honda will be a major competitive advantage for Honda dealerships.

Has Honda launched or offered an online platform for selling used vehicles?

To date, Honda has its own Honda Certified website. I don’t expect them to release a CarBravo or anything like that. I’m, frankly, somewhat skeptical of this company because I’m not sure if it’s anything other than a global General Motors dealership website. There are opportunities there, but I find it hard to believe that overall Honda dealerships would be better served by having another platform.

How are the skills required for sales employees at Honda dealerships changing?

You have to communicate with your client how they want to communicate in the methodology they want and very often this involves several things. This could be a showroom tour, followed by a video chat or text message. Salespeople need to be a little more nimble, a little more flexible. Overall, the dealerships have done a very good job of adapting to the situation, understanding customer needs and adapting their processes accordingly.

Certainly, the sales people have to be much more attentive to the product and you have to be able to explain the technology of these vehicles. For example, we have delivery coordinators whose only job is to sell a car. Their only job is to explain car technology to the consumer and to be delivery specialists rather than sales specialists.

Is Honda helping dealers manage these changes?

Honda has a lot of online training courses for sales consultants and publishes them quite often. They also launched their Honda digital customer experience program about a year and a half ago and created a marketplace for digital tools and communication tools, from digital retail to websites to digital marketing and hiring consultants to review best practices.

One of the things I like about Honda is that they are very good at encouraging you to do new things, but they don’t impose much. They explain why you should do something as a reseller instead of forcing yourself to do it. I think that’s something Honda dealerships really appreciate, and why Honda consistently ranks among the top dealer rated franchises. They understand that markets are different and dealers are different, so they find ways to give you choices.

Have there been any changes to Honda’s facility image programs?

Honda began to announce that it was considering changing its facility requirements, trying to be a little more adaptive and flexible with its schedules. I think everyone knows the square footage requirements are probably going to be reduced. Service requirements may be reduced. I think they are willing to look at alternatives, especially in larger metropolitan markets, where you have usage limitations and may need to have a separate sales and service center. I think they are much more flexible and reasonable. After building a brand new factory Honda, I found Honda, as usual, to be incredibly easy to work with. And frankly, there’s very little where Honda says, “It has to be like this. It’s the only way to do it.”

What’s missing from Honda’s lineup of vehicles?

A lot of what was missing has been fixed. The changes to the Ridgeline have been extremely well received. We actually have a van that looks like a truck. They have quite a wide range of vehicles. You start at the HR-V, and move up to a CR-V and a Passport, then a Pilot, so you have a pretty nice collection of SUVs at this point. Honda dealerships would love to have a full-size truck, but I’m not sure that will happen. But, that being said, the products are very well positioned in the market. There’s a very clear progression to being able to retain the customer and, as their lifestyle changes and the life cycle changes, to being able to move the customer along the line.

How do Honda fixed operations work?

In general, RO numbers are still a little behind pre-COVID levels, but not as much as they used to be. Services activity is quite robust at this stage. Customers seem to spend a bit more on service. This is likely due in part to delayed maintenance and people who haven’t visited the dealership in a long time. Most Honda stationary store operations are doing very well right now and have reached or exceeded capacity.

What areas remain of concern?

The big question for everyone will be what will happen to fixed operations in the next year or two, because we have a drop in volume. This usually leads to a drop in service volume, so I think we all need to think about how we can better engage our customers and keep them in the service lane, especially as volume drops? Honda has plans on this front, and I expect they will be making announcements in the near future that I believe will continue to strengthen fixed dealership operations.

What are Honda’s plans to promote leasing this year?

They continue to be engaged in leasing. Given their strong residuals, this is definitely a competitive advantage for them, and I haven’t seen any setbacks on their commitment to leasing. If you look at where Honda is strongest, it tends to be on the coast in the heavy rental markets, and I really don’t see Honda backing down on that. I think what Honda has done, to their credit, goes beyond leasing, they looked at markets that are more APR focused and made sure they had competitive APR offerings for those markets.


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